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Sunday, March 15, 2009

Standalone or consolidated results?

Standalone or consolidated results?

When an investor wants to value stocks, should he look at consolidated or standalone numbers? This is not so tricky when the difference between the profitability of standalone entity and consolidated entity is narrow. However, there are many companies with huge difference between the critical profitability parameters.

There are cases where high disparity exists. For this exercise, companies with consolidated trailing 12-month (TTM) sales of more than Rs 50 crore and more than 180% of the standalone TTM sales were selected. At the end, companies with high difference in earning per share (EPS) and ratio price to earning (P/E) ratio were shortlisted.

Cairn India topped this list with a P/E of 381 on standalone EPS, while its P/E on consolidated EPS stood at 37. Similar is the case with JM Financial (215 v 1.6), Edelweiss Capital (73.6 vs. 8.47) and Karuturi Global (57.9 v 3.51).

A few companies look attractive if P/E based on consolidated EPS is considered, while they are making loss on a standalone basis. These companies included K Sera Sera (P/E 1.9), Quintegra Solution (P/E 1.49), Sat Industries (P/E 4.56), Batliboi (P/E 4.37), and Subex (P/E 3.88).

If you are a value investor and put more emphasis on stocks with a consistent track record in terms of dividend payment, focus on standalone numbers. This is because the firm would be paying dividend from the earning of the standalone entity, and not consolidated.

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